Investors today care how their money is used in society, with fewer people prepared to invest in blind funds.
The rebuildingsociety.com platform allows individual investors to take control of their finances, lending to businesses they choose, at the interest level they choose. Although there is risk, the potential to earn higher levels of interest than what is available from traditional investments and savings solutions is attractive to many investors.
At rebuildingsociety.com we want to enable positive outcomes for both businesses and investors, and we remain committed to continued access to peer-to-peer lending for retail investors.
Retail investor: a non-professional individual investor
However, this is not necessarily the situation in other peer-to-peer firms, and many are redrafting their business models to exclude retail investors. In this article we'll look at what's happening within the industry and explore what this means for retail investors.
More P2P platforms exclude retail investors
Funding Circle paused peer-to-peer (P2P) lending for retail investors in April 2020 due to the pandemic. Last month, they announced it will not resume.
P2P lending allows individual lenders to lend money directly to small and medium-sized businesses, creating a circle of benefits. Lenders earn a return on the capital they invest, and businesses receive access to funding at lower rates than a bank. In some cases, these businesses would also have struggled to get bank funding. It’s an advantageous solution for both individual lenders and businesses.
Funding Circle’s original business model was built around P2P lending, which is clear from its branding. Although the firm will continue to manage customer loan portfolios until all remaining loans have been repaid or recovered, no new investments can be made. This includes investment on their secondary market. However, while Funding Circle will no longer provide a service for the retail lender side of their circle, they will continue to support small business. It seems that during the two-year pause, Funding Circle were more profitable without their services involving retail lenders.
Lisa Jacobs from Funding Circle said that the two-year pause from April 2020 “saw some major changes within the industry including key players closing their retail platforms, proposed regulatory changes and broader market dynamics. These factors have led us to today’s announcement as we do not believe we could continue to operate a sustainable product for retail investors.”
It’s not clear how the closure of other retail platforms affects Funding Circle, however these other firm closures are indicative of the mood within the industry.
What are P2P platforms doing instead?
With increased regulation from the Financial Conduct Authority (FCA) as well as placement by the FCA of P2P lending into the same high-risk category as cryptoassets and speculative illiquid securities, it’s no surprise that companies are pivoting to a different business model.
Funding Circle will focus on embedded finance, its API lending as a service in the US, and buy-now-pay-later loans for businesses.
Embedded finance: non-financial organisations can embed financial service solutions into their services; the customer’s journey is not disrupted by needing to engage with a separate financial service company. Examples include insurance for a product, buy-now-pay-later options and loans
Zopa stopped retail P2P lending at the end of January, returning funds to 60,000 customers. Zopa will instead focus on digital banking.
Ratesetter closed its P2P lending operations following an acquisition by Metro Bank in September 2020. Metro Bank purchased the remaining loan portfolio, closing retail lenders’ accounts in April 2021.
Speaking about Funding Circle’s growth, Mike Carter, head of lending and investment at Innovate Finance said “the ability to access other funding sources understandably leads platforms to review the cost benefit of maintaining a P2P operation, which has seen regulatory obligations increase and the permitted pool of investors reduce over time.
“At each stage of the regulatory journey in P2P we have seen platforms elect to pursue other business models rather than remain authorised as a P2P platform, and we hope that the current FCA and Treasury consultations on financial promotions won’t result in further attrition from the industry.”
Will the public continue to have access to P2P lending as an investment option?
While unsurprising, it’s sad to see retail lenders replaced by other funding sources in the funding equation. This, however, does not signal a reduction in the demand by retail investors for access to P2P lending. Lenders still want to support small businesses, and still want the opportunity to earn a healthy return on their investment.
Our Lender Consultation Survey earlier this year indicated that overall lenders felt positive about rebuildingsociety.com and peer-to-peer lending post-COVID. The data from this survey has been provided to the FCA in response to their request for comments on Consultation Paper CP22/2. We look forward to receiving the FCA’s response later in the year.
Like other platforms, we have diversified with products and services which are not available to retail investors. We also pursue loan funding from non-retail sources, such as our partnerships with local councils across the UK. However, this is as a complement to investment from retail lenders, not a replacement.
Basildon Borough Council: partnered with rebuildingsociety.com in February 2022, committing to lend alongside individual investors to SMEs in the Basildon Borough
With industry experience since 2012 and an average net return of 6.12% across publicly funded loans*, rebuildingsociety.com is at the forefront of British P2P platforms committed to retail lending. We offer a range of cashback incentives to our lenders, and our BuyBack Guarantee aims to reduce capital risk for lenders. We want lenders to retain their key, active role in our platform's funding equation.
*Rate accurate as of 27th May 2022. Past Returns are not indicative of future returns. See our Stats Page for specifics.
